Gas and electric companies reacted with alarm back in 2009 when a jury awarded more than $20 million to a single Texas property owner whose land was taken through eminent domain by a unit of the energy company Enbridge Inc. The verdict amounted to more than 50 times what Enbridge claimed the property was worth, and major energy industry players — including the developer of the controversial Keystone XL Pipeline — flocked to support Enbridge on appeal.
On Aug. 31, to the relief of Enbridge and its many amici, Baker Botts managed to get the verdict thrown out. In a 6-3 decision, the Texas Supreme Court vacated a $21 million verdict that Avinger Timber LLC won against an Enbridge subsidiary called Enbridge Pipelines LP. The court ordered a new trial, ruling that Avinger’s expert witness used an improper methodology to calculate the fair market value of the company’s property.
Almost 40 years ago, a prominent Texas family leased a 24-acre plot of land in Eastern Texas to the Tonkawa Gas Processing Co. In the years that followed, Tonkawa kept renewing the lease and built the property into a major gas processing facility and gas pipeline hub. The family eventually transferred the land to Avinger, and Enbridge Processing, which eventually merged with public utility Enbridge Pipelines, took over as lessee in 1998.
In 2008, with the lease up for renewal and the parties unable to agree on a price, Enbridge Pipelines (which, as a public utility, has the right to acquire land through eminent domain) filed a petition for condemnation, setting the stage for a 2009 jury trial to determine the fair market value for the property. The move was a no-brainer for Enbridge. Under the terms of Enbridge’s lease, if the lease expired Enbridge had six months to remove its infrastructure from the property. An eminent domain proceeding allowed it to avoid that obligation.
In the run-up to trial, the two sides offered radically different estimates of the property’s value. Enbridge’s expert put the value at just $47,940, arguing that the jury should treat the land as if it were unimproved rural residential property. Avinger’s expert, on the other hand, testified that the jury would have to consider the cost of relocating or disassembling the existing plant on the land. The trial judge excluded the report by Enbridge’s expert and OK’d the testimony by Avinger’s expert. Backed by the expert’s valuation, Avinger and its lawyers at the Corsicana firm Dawson & Sodd walked away with a $21 million verdict in January 2009.
On appeal to the 6th Court of Appeals, Enbridge argued that Avinger’s expert report violated the “value-to-the-taker” rule, which states that estimates of fair market value can’t be based on the property’s unique value to the taker. Enbridge argued that, in essence, the expert told the jury to consider what Enbridge would have to pay to remove the existing infrastructure if it couldn’t condemn the land. The intermediate appeals court declined to vacate the award, ruling that the relocation costs were appropriately considered by the jury. The court found that the jury wasn’t considering the property’s unique value to the taker, but rather the money a potential purchaser would save in not having to move the equipment itself.
Enbridge brought in Baker Botts partner Stephen Tipps, who convinced the state’s highest court to hear the case in 2010. Keystone developer TransCanada Corp. and other companies and gas industry groups filed seven amicus briefs supporting Enbridge’s position, while eminent domain opponents like the Texas Wildlife Association filed five amicus briefs supporting Avinger’s view. Avinger stuck with Dawson & Sodd for the oral argument in February but also brought on Locke Lord for briefing.
Enbridge and its supporters prevailed on Aug. 31, paving the way for a new trial. “It is apparent that [Avinger's expert] was not valuing the 23.79 acres improved by the pipeline infrastructure that Avinger lost, but rather the gas processing facility that Enbridge gained,” the Supreme Court majority ruled. “Although [the expert] testified that the land was worth $20,955,000 even if Enbridge Pipelines did not exist and the plant was ‘swept away by a tornado,’ other portions of [his] testimony flatly contradict those statements.”
Tipps says he thinks the decision brings Texas in line with other jurisdictions that have heard similar eminent domain cases. The lower court ruling “would have raised the cost of condemnation and made it much more difficult for gas and electric companies to conduct their business in a significant manner.”
Avinger’s lead lawyer Glenn Sodd of Dawson & Sodd says he will file a motion for a rehearing. He says the majority misapplied the value-to-the-taker rule because much of the briefing and argument focused on a different doctrine called the project-enhancement rule. “The issue in this case is extremely complicated and wasn’t as well-briefed as it could have been,” he says. “We’re optimistic that once the court has all the testimony in front of it, we’ll be able to straighten this out.”